

Business Analysis and Valuation
Test Preparation
Course Introduction
Business Analysis and Valuation is designed to equip students with the analytical tools and frameworks necessary to evaluate the financial health and strategic position of businesses. The course covers methods for interpreting financial statements, assessing profitability and risk, forecasting performance, and determining the intrinsic value of firms. Through real-world case studies and practical exercises, students learn how to apply valuation techniques such as discounted cash flow, comparable company analysis, and precedent transactions. This course is essential for anyone interested in careers in investment banking, corporate finance, consulting, or equity research, as it bridges accounting, strategy, and finance to inform sound decision-making.
Recommended Textbook
Financial Reporting Financial Statement Analysis and Valuation 7th Edition by James M. Whalen
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14 Chapters
1065 Verified Questions
1065 Flashcards
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Chapter 1: Overview of Financial Reporting, Financial
Statement Analysis, and Valuation
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99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/55698
Sample Questions
Q1) Which of the following assets would appear on the balance sheet at an amount greatly below its fair market value?
A) inventory
B) marketable securities
C) equipment
D) brand name
Answer: D
Q2) What is an industry's value chain?
Answer: An industry's value chain is the sequence of activities involved in the creation,manufacture and distribution of its products and services.
Q3) The first step in financial statement analysis is to identify the __________________________________________________ of the industry in which a firm participates.
Answer: economic characteristics
Q4) The threat of new entrants is measured by whether there are entry barriers,such as capital investment,________________________________________,patents,or regulation that inhibit new entrants.
Answer: technological expertise

Page 3
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Chapter 2: Asset and Liability Valuation and Income Measurement
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) A change in the _________________________ or _________________________ will not change a preset series of cash flows,however it will change the present value of those cash flows.
Answer: interest rate,discount rate discount rate,interest rate
Q2) What level are inputs for estimating fair values are those inputs include quoted prices for similar assets or liabilities in active or inactive markets,other observable information such as yield curves and price indexes,and other observable data such as market-based correlation estimates?
A) Level 1.
B) Level 2.
C) Level 3.
D) None of these.
Answer: B
Q3) ____________________ assets and liabilities represent amounts of cash a firm can expect to receive or pay in the future.
Answer: Monetary
Q4) The amount initially paid to acquire an asset is called
Answer: acquisition cost

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Chapter 3: Income Flows Versus Cash Flows:
Understanding the Statement of Cash Flows
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) When preparing the statement of cash flows using the indirect method,an increase in accounts payable would appear as
A) a decrease in the operating activities section
B) an increase in the operating activities section
C) a use of cash in the investing activities section
D) a source of cash in the investing activities section
Answer: B
Q2) Cash flow from operations should include none of the cash flows associated with marketable securities if such transactions are viewed as
investing activities
Answer: investing activities
Q3) When net income is low relative to operating cash flows,we describe the firm as having recorded
A) income-decreasing accruals.
B) income-increasing accruals.
C) income neutral accruals.
D) abnormal accruals.
Answer: A

Page 5
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Chapter 4: Profitability Analysis
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97 Flashcards
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Sample Questions
Q1) Which of the following are better indicated by percentage change statements than common-size statements?
A) monetary changes
B) profitability
C) stability
D) growth and decline
Q2) Common-size analysis requires the analyst to be aware that percentages can change because of all of the following except:
A) changes in expenses in the numerator independent of changes in sales
B) changes in sales independent of changes in expenses
C) interaction effects between the numerator and denominator
D) All of these are possible explanations.
Q3) Which of the following is not a way a company can achieve a low-cost position
A) economies of scale
B) production efficiency
C) customer service
D) outsourcing
Q4) Economic theory suggests that higher levels of ____________________ in any activity should lead to higher levels of
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Chapter 5: Risk Analysis
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81 Verified Questions
81 Flashcards
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Sample Questions
Q1) Market equity beta measures the covariability of a firm's returns with the return's of
A) all industry competitors in the market.
B) risk free securities.
C) all securities in the market.
D) all firms of comparable market value.
Q2) The beta coefficient measures the ____________________ of a firm's returns with those of all shares traded in the market (in excess of the risk-free interest rate).
Q3) One problem with debt ratios is that they provide no information about the ability of the firm to generate ________________________________________ to service debt.
Q4) All of the following are common firm-specific risks faced by companies except:
A) litigation
B) employee relations
C) dependence upon one or a few customers
D) labor wages and supply
Q5) In general,the shorter the number of days of needed financing,the ____________________ is the cash flow from operations to average current liabilities.
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Chapter 6: Financing Activities
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62 Flashcards
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Sample Questions
Q1) Which is the date when a firm gives a stock option to employees?
A) vesting date
B) grant date
C) exercise date
D) market date
Q2) Which of the following is not a condition that requires capital lease accounting?
A) The lease term extends for more than 70% of the assets economic life.
B) The lease agreement transfers ownership of the leased asset to the lessee.
C) The lease agreement contains a bargain purchase option.
D) The present value of the minimum lease payments equals or exceeds 90% of the fair market value of the asset.
Q3) One of the conditions that must be met to recognize an estimated loss from a contingency is that the amount of loss can be estimated with
Q4) The acceptable method of accounting for stock options is the _________________________ method.
Q5) The first date at which employees can exercise their stock options is termed the _________________________.
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Chapter 7: Investing Activities
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98 Flashcards
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Sample Questions
Q1) Most publicly traded firms in the United States use the _________________________ method of depreciation.
Q2) When a firm sells a trading security,it recognizes
A) the average of the selling price and the book value as a gain or loss in measuring net income.
B) the difference between the selling price and the book value as a gain or loss in measuring net income.
C) amortizes any difference between the acquisition cost and maturity value as interest revenue over the life of the debt.
D) the difference between the selling price and the acquisition cost of the security as a realized gain or loss on the income statement.
Q3) For U.S.GAAP,software development costs are capitalized as intangible assets
A) after a copyright is obtained.
B) once the technological feasibility of the product is established.
C) from the beginning of development.
D) once the product is introduced into the marketplace.
Q4) An _________________________ occurs when the carrying amount of a company's long-lived assets are not recoverable.
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Page 9

Chapter 8: Operating Activities
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92 Verified Questions
92 Flashcards
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Sample Questions
Q1) When cash collectibility is uncertain,a firm using the ____________________ method recognizes revenue as it collects portions of the selling price in cash.
Q2) Which of the following is not one of the GAAP classifications for derivatives?
A) Speculative investment
B) Fair value hedge
C) Asset-Liability hedge
D) Cash flow hedge
Q3) When input prices are increasing,companies that use the LIFO method of accounting for inventory will report
A) Lower cost of goods sold amounts in comparison to the FIFO method
B) Higher sales amounts in comparison to the FIFO method
C) Higher ending inventory amounts in comparison to the FIFO method
D) Lower gross profit margins in comparison to the FIFO method
Q4) Income tax expense consists of two components,the ____________________ portion and the ____________________ portion.
Q5) Dividing a company's income tax expense by its book income before income taxes provides the company's ___________________________________.
Q6) ___________________________________ is primarily a question of timing.
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Chapter 9: Accounting Quality
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Sample Questions
Q1) Many times a financial analyst may decide to make adjustments to the financial statements in order to make the statements more useful.Which of the following would not require an adjustment to the financial statement?
A) A company signs a new contract with a customer.
B) A delivery company incurs a loss from disposition of used delivery trucks.
C) A company changes the useful life of its equipment from 5 years to 8 years.
D) A company incurs a charge related restructuring its operations.
Q2) The best measure of a firm's sustainable income is A) net income.
B) income from continuing operations.
C) income before extraordinary items.
D) income before extraordinary item and change in accounting principle.
Q3) The _________________________ is the date on which a firm commits itself to a formal plan to dispose of a business segment.
Q4) Accounting information should be a fair and complete representation of the firm's economic
Q5) When evaluating the quality of accounting information the user should consider the ____________________ of the measurements made.
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Chapter 10: Forecasting Financial Statements
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59 Flashcards
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Sample Questions
Q1) For some types of assets,such as accounts receivable,asset growth typically ____________________ future sales growth.
Q2) Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.
Q3) All of the following are true regarding projected financial statements except:
A) The statement of cash flows is the most critical forecast since it reflects profitability rather than viability.
B) Preparing projected financial statements must incorporate a company's past performance records.
C) Preparing projected financial statements must incorporate a company's current performance records.
D) The income statement demonstrates immediate capability to service debt for banks or real potential for growth in returns for venture capital.
Q4) The authors set forth a seven-step forecasting game plan for preparing pro forma financial statements.Discuss the seven steps necessary to prepare the three principal financial statements.
Q5) Realistic expectations are ____________________ and ____________________.
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Chapter 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) One rationale for using expected dividends in valuation is
A) Dividends are a necessary payment in order for a firm to have value.
B) Dividends are paid in cash, and cash serves as a measurable common denominator for comparing the future benefits of alternative investment opportunities.
C) Dividends are the most reliable measure of value because most companies payout dividends to shareholders.
D) Dividend payout ratios are set based on profitability.
Q2) The dividends valuation approach measures value-relevant dividends to encompass various transactions between the firm and the common shareholders.What transactions should the analyst include in value-relevant dividends for purposes of implementing the dividends valuation model? Why?
Q3) Explain why analysts and investors use risk-adjusted expected rates of return as discount rates in valuation.Why do risk-adjusted expected rates of return increase with risk?
Q4) Normally,valuation methods are designed to produce reliable estimates of the value of a firm's ______________________________.
Q5) Why are dividends value-relevant to common equity shareholders?
Page 13
Q6) Provide the rationale for using expected dividends in a valuation model.
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Chapter 12: Valuation: Cash-Flow-Based Approaches
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62 Flashcards
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Sample Questions
Q1) ____________________ is an estimate of systematic risk based on the degree of covariation between a firm's stock returns and an index of stock returns for all firms in the market.
Q2) Nonsystematic risk factors would include all of the following except: A) the sustainability of the firm's strategy
B) the firm's ability to generate revenue growth
C) the firm's ability to control expenses
D) unemployment levels
Q3) Regarding the equity buyout,compute the weighted average cost of capital of the new capital structure.
Q4) Explain "free" cash flows.Describe which types of cash flows are free and which are not.How do free cash flows available for debt and equity stakeholders differ from free cash flows available for common equity shareholders?
Q5) Starting with free cash flows from operations,discuss how an analyst would measure free cash flows to common equity shareholders.
Q6) The cash-flow-based valuation approach measures and values the cash flows that are "free" to be
unencumbered by necessary reinvestments in operating assets or required payments to debt holders.
Page 14
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Chapter 13: Valuation: Earnings-Based Approaches
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67 Flashcards
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Sample Questions
Q1) __________________ means that net income includes all of the recognized elements of income of the firm for common equity shareholders and dividends include all direct capital transactions between the firm and the common equity shareholders.
Q2) Dirty surplus items in U.S.GAAP typically arise from all of the following except:
A) changes in investment security fair values
B) foreign currency exchange rates
C) interest rates
D) realized gains
Q3) If an analyst expects a firm to generate net income each period exactly equal to required earnings,then the value of the firm will be equal to the ______________________________ of common shareholders' equity.
Q4) Residual income valuation focuses on ____________________ as a periodic measure of shareholder wealth creation.
Q5) What is meant by the term clean surplus accounting?
Q6) Over the life of a firm,the capital invested in the firm by the shareholders plus the income of the firm will reflect the ______________________________ to the shareholders.
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Page 15

Chapter 14: Valuation: Market-Based Approaches
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64 Verified Questions
64 Flashcards
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Sample Questions
Q1) Strictly speaking,the price-earnings ratio assumes that firm value is the
A) future value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate.
B) future value of a constant stream of expected future earnings, discounted at a constant expected future discount rate.
C) present value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate.
D) present value of a constant stream of expected future earnings, discounted at a constant expected future discount rate.
Q2) A company with a PEG ratio of greater than one would be interpreted as having a stock price
A) that is consistent with the company's growth prospects
B) that is low relative to the company's growth prospects
C) that is high relative to the company's growth prospects
D) that is undervalued
Q3) The PE multiple assumes that firm value is the present value of a constant stream of _____________________________________________,discounted at a constant expected future discount rate.
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